Challengers say Ohio ‘bailout’ plan pits companies against each other

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FirstEnergy’s plan to guarantee profits for certain nuclear and coal power plants isn’t just bad for competition in the energy sector, but for Ohio overall, say challengers.

Final briefs on the merits were filed with Ohio regulators last week, with FirstEnergy and more than a dozen other organizations and companies supporting a revised plan that FirstEnergy has labelled a comprehensive settlement of the case.

That settlement with a group of companies, organizations and the PUCO staff would approve the plan for all of FirstEnergy’s utility customers for an eight-year term instead of the original 15-year term. Staff for the Public Utilities Commission of Ohio have signed onto the plan, even though they offered testimony against it at the hearing in the case.

At the same time, the settlement would bless other terms that could benefit some entities, possibly at the expense of other ratepayers. And that could affect overall competition in Ohio’s economy, say challengers.

Consequently, other parties continue to oppose the deal and say it is anticompetitive, environmentally unsound, and generally against the interests of Ohioans.

“We just think it’s bad business,” said Kimberly Bojko, who represents the Ohio Manufacturers’ Association Energy Group (OMA) in the case. “You’re going to pick winners and losers.”

Anticompetitive?

Under the deal, FirstEnergy’s regulated utilities would buy all the output from certain coal and nuclear plants owned directly or indirectly by their affiliate FirstEnergy Solutions and resell that electricity on the competitive market. The utilities would pass any net costs or savings on to all distribution customers, regardless of who supplies their generation.

“The plan has been through an exhaustive review, including a hearing that lasted two-and-a-half months,” said FirstEnergy spokesperson Doug Colafella. “We’re now awaiting a Commission decision on a comprehensive, broadly supported settlement that will accomplish three things — safeguard customers from rising prices in the years ahead, protect Ohio jobs by keeping key power plants operating, and chart a course to a cleaner energy future in Ohio through a commitment to renewable energy and a goal to reduce CO2 emissions by more than 90 percent over the next few decades.”

Supporters of the settlement include the Ohio Energy Group, which is an organization of large industrial organizations, Kroger Company, Nucor Steel Marion, the Council of Smaller Enterprises, a university organization, a labor union, and a few organizations that represent low-income customers.

But other parties still have strong objections to the plan, including the Office of the Ohio Consumers’ Council (OCC), OMA, the Retail Electric Supply Association (RESA), and various environmental groups.

The challengers’ objections go beyond the alleged subsidies that FirstEnergy would get.

“The settlement also gives subsidies to certain large customers and certain commercial customers at the expense of everybody else,” Bojko said, including both consumers and other companies. “You’re really pitting competitors against each other.”

And giving benefits to some businesses in a limited settlement is “basically discouraging investment in the state of Ohio,” she said.

Among other things, he explained, “there should be an end to utilities offering cash or cash equivalents (often using other consumers’ money) to induce parties to sign settlements, especially settlements that involve broad public policy issues.”

Nor should the fact that the PUCO staff signed on sway the full commission, in Doron’s view.

“The PUCO staff originally filed testimony against imposing power purchase agreements on Ohio consumers,” he explained. “Those original PUCO Staff recommendations were aligned with regulatory principles and the public interest.”

A corporate bailout

Challengers also continue to stress the potential anticompetitive effects of the deal on retail and wholesale electricity markets.

“FirstEnergy in this case and [American Electric Power] in their case are looking to be protected from the outcome of competitive markets and they want their customers to bail them out,” said Joseph Bowring at Monitoring Analytics, the independent market monitor for grid operator PJM.

“Generation is supposed to be competitive,” agreed Bojko. However, neither FirstEnergy nor American Electric Power (AEP) solicited competitive bids on their proposed deals, she noted.

“We call it a corporate bailout for FirstEnergy and AEP at the expense of the ratepayers,” Bojko said.

“Even the companies project that at least in the first few years, it’s going to cost customers money for this purchase power agreement,” Bojko noted.

Those potential costs remain high even though the term of the proposed plan is now only eight years and includes a promise by FirstEnergy to absorb up to $100 million of possible losses, challengers say.

“The Ohio Consumers’ Counsel has projected that the bailout could cost each of 1.9 million FirstEnergy consumers between $800 to $1,100 over eight years ($3.6 billion to $5.15 billion in total),” Doron said.

Reliability ‘not at risk’

“On the face of it [FirstEnergy’s] proposal doesn’t pass the laugh test,” said Bowring.

If the group of plants were as good an asset as the company argues, FirstEnergy’s duty to its shareholders would require the company to keep them within its competitive portfolio, he explained. Instead, FirstEnergy’s plan would shift almost all financial risk to others.

“By their very actions, they’ve indicated that they think these are bad assets,” Bowring said.

Claims about costs possibly rising in the future are also misplaced, he noted. “Customers can go get a hedge from any retailer. They can lock in a price for a year or multiple years. They don’t need FirstEnergy to act on their behalf,” Bowring said.

In his view, the rate stability offered by FirstEnergy is also above projected future market rates. “If you think the average price is going to be $30 and someone offers you a hedge at $50, would you take it?” Bowring asked.

Nor is the deal justified by alleged fears about the “horrors that might come from a power plant or two closing—as if that never happened,” said Dick Munson at the Environmental Defense Fund. “This is America. We have a free enterprise system. Uneconomic facilities close down.”

“The reliability of Ohioans’ electric generation service is not at risk, despite what the utilities have implied,” Doron stressed.

“The PUCO, where the utilities have filed their power plant bailout cases, no longer regulates reliability of electric generation for Ohioans,” explained Doron. “FERC and PJM are responsible for power plant reliability.”

Grid operator PJM filed an amicus brief with the PUCO, which weighed in on both current and future reliability issues.

“PJM’s brief states that the electric power system is reliable in Ohio and the PJM region,” said spokesperson Ray Dotter. “The brief notes that ‘reliability assurances do not necessarily hinge on the future availability of specific resources or approval of the proposed Stipulation.’”

“The bottom line is that the proposal is going to raise our electric bills and lock in at least eight more years of harmful and quite unnecessary air pollution,” said Trish Demeter at the Ohio Environmental Council. “FirstEnergy has not done anything to prove that this deal is in the public interest in any way, shape or form.”

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The Ohio Environmental Council and Environmental Defense Fund are members of RE-AMP, which publisehs Midwest Energy News.

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One thought on “Challengers say Ohio ‘bailout’ plan pits companies against each other”

If we are going to talk about subsidies let us not forget the massive special rate contracts that have given five companies in FirstEnergy and AEP territory more than $200 million per year for the last six years, paid for by other customers.

These companies are represented by the law firm which sponsored the attack on Ohio’s clean energy standards. Some of the subsidies are even hidden in the cost of the clean energy standards as it is reported to the PUCO. In every year since the efficiency and renewables standards were implemented FirstEnergy and AEP customers have paid more for these subsidies than for the efficiency and renewables. Of course the subsidies don’t produce any savings to justify their existence.

The FE bailout is three times larger than the industrial subsidies for FE customers. But the AEP subsidies are larger than their proposed bailout.